Data point to upward revision of GDP

The U.S. economy likely expanded slightly in the fourth quarter, according to data on Friday that suggested a surprise drop in GDP reported by the government last week was overstated.

The U.S. trade deficit narrowed to its lowest point in nearly three years in December on a decline in oil imports and a surge in exports.

The country's trade gap was $38.5 billion, Commerce Department data showed on Friday, a much smaller deficit than analysts polled by Reuters had expected.

"Trade data for December paint a reassuring and encouraging picture of the U.S. economy at the end of last year," said Chris Williamson, chief economist at Markit.

A separate report from the Commerce Department showed wholesale inventories unexpectedly declined in December, which offsets some of the gains to GDP from trade.

Taken together, the two reports suggest the U.S. government could revise upward its advance reading for fourth-quarter gross domestic product, which showed the economy contracted at a 0.1 percent annual rate.

The decline in GDP was driven by an expected drop in exports, smaller gains in inventories and a plunge in government spending on the military.

Barclays said even with December's decline in wholesale inventories, GDP likely expanded 0.3 percent in the fourth quarter thanks to the higher export numbers in Friday's trade report.

U.S. exports increased $8.6 billion in December, boosted by sales of industrial supplies, including a $1.2 billion rise of non-monetary gold.

In a reflection of America's boom in the output of oil and natural gas, petroleum exports rose by nearly $1 billion in the month to a record high.

A decline in petroleum imports led overall purchases from abroad to fall $4.6 billion in December. For the year, crude oil imports fell to their lowest levels since 1997 in terms of volume.

Prices for U.S. stocks rose as investors were impressed by a batch of strong trade data, which included the U.S. figures as well as readings showing stronger exports and imports in China during January. Prices for U.S. government debt fell.

For all of 2012, the U.S. trade gap fell by 3.5 percent to $540.4 billion. Running trade deficits means the country bleeds dollars, so trade is still a drag on the U.S. economy. But rising exports are helping it to be less of a drag than in prior years.

Exports last year rose 4.4 percent.

The trade defici it grew with China, however. That raised hackles of American manufacturers who want the United States to pressure the Asian giant to strengthen its currency.

"Congress and the administration must take on currency manipulation," said Scott Paul, president of the Alliance for American Manufacturing

But even the figures on China had a silver lining. While U.S. imports last year from China increased to a record high, so did America's exports to the country.

America's December trade deficit with China for goods, which was not seasonally adjusted, narrowed by $4.5 billion on a drop in imports.

Also in December, U.S. wholesale inventories unexpectedly fell as auto dealers and agricultural suppliers drew down their stocks.

The Commerce Department said stocks of unsold goods at U.S. wholesalers dropped 0.1 percent during the month and grew less than initially estimated in November.